Telecom Italia faces test of two towers

Inwit, the tower business in question, is small but important. It is separately listed, and Telecom Italia owns 60 percent. Its sale was one source of tension between Vivendi and TI Chief Executive Marco Patuano, who resigned on March 22, according to Italian newspaper La Repubblica.Reuters | March 24, 2016, 09:50 IST

LONDON: Rival bids for Telecom Italia's towers could be a useful independence test for the company's board. One looks better for shareholders today. The catch is that the other deal is with Mediaset , which is also in separate talks with big Telecom Italia shareholder Vivendi.

Inwit, the tower business in question, is small but important. It is separately listed, and Telecom Italia owns 60 percent. Its sale was one source of tension between Vivendi and TI Chief Executive Marco Patuano, who resigned on March 22, according to Italian newspaper La Repubblica.

On one hand, there is a bid led by a towers group called Cellnex. It would buy out almost all the shares in Inwit, delisting the unit and leaving Telecom Italia with less than 15 percent. The second offer is from EI Towers, controlled by Silvio Berluconi's Mediaset. It is offering slightly more per share, but only seems to want 30 percent.

The first deal will raise more cash. That could be more appealing for Telecom Italia, which needs to cut debt. Selling out as much as possible might seem smart since valuations for towers are rich. Moreover, while Cellnex is offering 4.90 euros per share compared with EI's five euros 20 million euros less when applied to a 30 percent stake - it also brings the possibility of big synergies. Those synergies could have a present value of at least 400 million euros, offsetting a lower price.

All of the above might suggest Cellnex is the easy choice. There are wrinkles. First, there might be antitrust obstacles. More importantly, Vivendi is in talks with Mediaset over its pay-TV business, Berlusconi has confirmed. There is no formal link between the two deals, but it is possible that Vivendi might then help Telecom Italia get access to exclusive content. Vivendi's position isn't clear. Its preference will be entirely driven by value, according to a person familiar with its thinking.

Right now, what Telecom Italia needs is transparency. Since Vivendi emerged as a TI shareholder, it has blocked a share conversion and led to a change of chief executive. In this, the first big asset deal since Vivendi popped up, the board has a chance to show it is acting clearly in all shareholders' interests. The simplest option, which for now looks like the Cellnex deal, is probably the best.

Context news

A consortium led by Cellnex has made an offer of 4.90 euros a share for Telecom Italia's stake in Inwit, a listed towers company. Telecom Italia is hoping to sell 45 percent of the group.

EI Towers, controlled by Mediaset, has also made an offer for a stake in Inwit. It is reported to have offered five euros a share for a minority stake.

Vivendi, the French media conglomerate that owns 24.9 percent of Telecom Italia, is also in discussion with Silvio Berlusconi's Mediaset over a content deal.

(Editing by John Foley and Sarah Bailey)(The author is a Breakingviews columnist. The opinions expressed are his own.)

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